Why should you incorporate in Delaware?
I get this question all the time…
The truth is that if you’re a US-resident, you should incorporate in your home state.
However, if you’re a non-US resident, then you should incorporate in Delaware.
Delaware is the most business-friendly state in the United States.
On this page, I’ll explain why you should incorporate in Delaware…
If you’re looking to incorporate your business in Delaware, email me at sam@mollaeilaw.com
Why Incorporate in Delaware?
You should incorporate in Delaware because Delaware is the most business-friendly state for non-US residents. Delaware is the most popular state for LLCs in the US.
The top 5 reasons to incorporate in Delaware:
- Business-friendly laws
- Privacy
- Cheaper filing fees
- No income taxes
- Investor appeal
We will take each one of these points in turn, so you can get an idea of why they are so important.
We’ll go more in-depth when it comes to the reasons later, but for now, let’s look at some of the facts regarding why do companies incorporate in Delaware.
The first fact is that over a million companies are incorporated in Delaware right now. You also have 60% of the Fortune 500 making their headquarters in the state.
One of the big reasons why Delaware is so popular is because it’s one of the few states with a 0% rate of sales tax. It simply doesn’t exist.
Another reason companies are incorporated in Delaware is the tax rates. The corporation income tax rate is a simple 8.7% flat rate.
LLCs and both partnership types must pay an annual tax of $250, which is a small price to pay for the benefits of Delaware.
Finally, remember that Delaware is close to the nation’s capital, on the same coast as Florida, and is just a couple of hours away from New York.
Companies are making no sacrifices by deciding to incorporate in Delaware, as opposed to states with huge markets.
Top 5 Reasons Why You Should Incorporate in Delaware
Delaware has five main reasons that it uses to attract big companies, including business-friendly laws, privacy, low filing fees, a lack of income tax, and the knowledge investors have of the Delaware system.
So why do corporations register in Delaware? These are the reasons why:
The Delaware General Corporation Law allows business formations to be as simple or as advanced as you like. Furthermore, the Court of Chancery takes advantage of judges instead of juries, which gives you an experienced judgment instead of a ruling by those who have no clue what they’re talking about.
Delaware doesn’t require directors or officers to register on the formation documents. You have the highest level of privacy in the country.
The filing fee for Delaware is just $90. It’s cheaper than California, New York, and Texas.
There’s zero income tax for business activities outside of Delaware. Now you get to keep more of your money.
Top investors and business leaders understand the Delaware system. By incorporating here you’ll be exposed to a greater range of investment and mentoring options.
In short, this is why I have helped hundreds of companies incorporate themselves in Delaware. So why are companies incorporated in Delaware?
It’s simple. It’s the ideal business environment.
Need more reasons for incorporating in Delaware? Shoot me an email at sam@mollaeilaw.com
Delaware: The Best State to Incorporate for Non-Residents
Delaware’s low tax rates and the lack of a huge franchise tax make it the best state for non-residents to create a business, whether they’re foreigners or simply from another state.
So why incorporate in Delaware as a non-resident?
The big pro is the favorable laws towards non-residents. These same laws are also favorable to third-party residents and non-resident investors.
Your company will be far more attractive.
Remember that Delaware also comes with a far lower franchise tax than California. In California, you must pay $800 in franchise taxes on an annual basis (and that’s the minimum).
Furthermore, if you have a good tax professional you can pay almost nothing in state taxes. Forget trying that in a place like New York or California.
If you intend on making it big most outside investors will expect you to have a presence in Delaware.
How to Incorporate in Delaware
Delaware incorporation is simple, whether you want a simple business structure or something more complex. Get a business lawyer who understands the system to help you out.
Why do companies incorporate in Delaware? It gives them the flexibility they’re never going to find in any other state.
But don’t allow yourself to be taken in. Incorporating a business, even in Delaware, requires due care and expertise to make sure there are no problems.
Delaware is one state that makes this easy. However, that doesn’t mean someone without any expertise should attempt this.
Choose me as your business lawyer to help you out. I have firsthand experience in setting up corporate entities for non-residents in this state.
Getting started is as easy as sending me an email at sam@mollaeilaw.com.
Why Do Companies Incorporate in Delaware?
Companies like to incorporate in Delaware because of the investment attraction. But they also have the support they need to function that they don’t get in other states.
Let’s look at the key reasons:
- The Right Support – Delaware is a business state, so it makes sense that starting a company takes a short time. This means that there’s also a strong level of online support.
- Better Courts – The court system is geared towards businesses here. Judges have expertise in dealing with a wide range of corporate issues. You know that if you have a dispute you’re getting a fair judgment.
- Taxation Favors Companies – There is a franchise tax, but there’s no state corporate income tax. You also only pay tax on income derived from Delaware, so outside of Delaware, you pay nothing.
- Privacy – Corporation laws are flexible. For example, a single person can hold every officer position and be the sole director of a company. Furthermore, you don’t have to appear on the formation documents.
- No Residency Requirement – In many states at least one officer must be present within that state. Not the case in Delaware.
So why are companies incorporated in Delaware?
The stability and predictability of the state is one thing. But courts have a strong record of pro-management and pro-business rulings.
Why Do Corporations Register in Delaware?
Corporations register in Delaware because the legal system is robust for businesses and you get a pro-business economy you wouldn’t get elsewhere.
One of the big advantages of this state is that companies can issue stock to employees. That makes it easy to raise money from around the world. It also offers a level of stability because the rules rarely change.
And consider the fact that ordinary stockholders don’t have the power to stop mergers, as they do in places like California.
That’s attractive.
Another difference is that Delaware is the only state with its business court system. The Court of Chancery allows business issues to be resolved quickly by a judge who specializes in corporate law.
In short, Delaware corporations and directors have a legal system that supports them and a high level of protection.
Why is Delaware a Tax Haven?
Why is Delaware a tax haven? It’s simple. Delaware has low taxes, no state taxes, and a high degree of corporate privacy.
But the reason as to why incorporate in Delaware is because of the comparisons with other states.
California, for example, has a high franchise tax and high state taxes. There’s a similar situation in New York. Any taxes here are a flat rate and not based on earned income.
Combine that with a strong level of corporate privacy and it’s difficult for outsiders to come after corporations or specific directors. That’s a great advantage if you’re either a director or an investor in Delaware.
This makes a fantastic tax haven in Delaware. It’s not just because of low taxes it’s because of the pro-business system that supports it.
Incorporate in Delaware Advantages
There is a range of advantages to doing business in Delaware. We briefly discussed why you should consider incorporation above, but we are going to discuss the things you can do as a business owner that you can’t do in other states.
Business Structure Benefits
The main advantage you take advantage of if you incorporate in Delaware is that you have a state that’s more accepting of complex structures. There’s almost no business structure that isn’t acceptable in Delaware.
Most states also demand that there’s more than one person to hold various corporate positions. Not true in Delaware. A single person can occupy every position and run the company alone. And that director doesn’t need to be named on any formation documents. You can run your business with a large degree of privacy.
Another attractive prospect is the separate systems in place for residents of Delaware and foreigners. Non-residents don’t have to pay Delaware taxes. There are no requirements to ever become a state resident unless you particularly want to.
A Truly Fair Business Legal System
Delaware is the only state in the country that has a separate court system just for businesses. This is known as the Court of Chancery and is extremely helpful.
For a start, there are no juries in the Court of Chancery. Just a single judge with a wide knowledge of business affairs in Delaware and across the country.
The Court of Chancery has been praised for its consistent decisions. Cases are nearly always decided in favor of the business.
Investors always love to see that a business is incorporated in Delaware as they know their money is more likely to be safe.
Raising Money in Delaware
Incorporate in Delaware and you have a better environment for raising money for your business. Investors are more likely to consider investing in your company.
For example, you can issue stock to employees. This makes it easier to bring in global investors.
This is a system many other states don’t allow. The rules on issuing stock are clearly defined, which offers the stability and predictability investors want.
To give you another case of why Delaware is so important for investors, look at the rules on mergers.
In California, holders of general stock have the power to approve corporate mergers. That gives a huge amount of power to common stockholders, which most investors don’t like as they feel they don’t have the control they want.
That can’t happen in Delaware. Venture funds can block decisions like this, so their money is safer.
Incorporate in Delaware Disadvantages
Like with anything, there are also disadvantages to your decision to incorporate in Delaware. Thankfully, these disadvantages are extremely limited and don’t present too much of a problem for most of the companies registered here.
The main disadvantage is something we talked about earlier. That is the requirement to ‘qualify’ your business to operate in another state.
Most states will treat corporations from outside of their jurisdictions as foreign entities. That means they may have to obtain expensive licenses and file an obscene amount of paperwork.
There are other disadvantages, such as paying unnecessary fees and not sufficiently sheltering your capital. But these disadvantages only appear when you incorporated incorrectly.
This is why I’m here to help. I can analyze your business and inform you whether the right decision for you is to incorporate in Delaware. All you have to do is shoot me a message at sam@mollaeilaw.com.
How Do Taxes Work if You Incorporate in Delaware?
Taxes are always high on the list of reasons why people incorporate in Delaware. But those tax benefits also come with responsibilities.
The first aspect you need to know is that LLCs don’t have to file an annual report. Instead, they simply pay an annual tax of $300 before the end of June 1st.
The necessary papers are sent to your address. Just spend the two minutes it takes to fill them out and send them away. It’s that easy.
Another tax you must consider is the Franchise Tax. This tax is levied based on the type of corporation you have and the number of shares it has issued. It’s a calculation that can be quite complicated for the average person to understand.
Let’s look at an example of how this works:
Corporation A has issued 5,000 shares so it is therefore considered a minimum stock corporation.
The current fee is set at $50 for the annual report and its taxes will be about $175, meaning that it would pay just $225 for the whole year.
Corporation B, however, has 5,001 shares and is a maximum stock corporation. The annual report fee for this corporation is still the standard $50.
The difference is that Corporation B will be paying taxes of up to $180,000 this year. That would simply be combined with the annual report fee to make up what it must pay in total.
Beware that there’s a $125 penalty for late payment. Plus, the amount will be sanctioned with 1.5% in interest every month.
How Much Does It Cost to Incorporate in Delaware?
Incorporation in Delaware is cheap when compared to other states. You just need to pay $89 for filing fees and $50 for the Certificate of Good Standing. It’s that easy.
However, you may want to pay slightly more for someone like me to complete the process for you.
You’ll get the corporation type you want and the company structure you need. Furthermore, you’ll be able to guarantee full compliance.
Incorporate in Delaware vs. California
We’ve discussed the reasons to incorporate in Delaware, but let’s compare it to doing the same in California (one of the worst states in the country for incorporation).
As well as high taxes on businesses and individuals, California has a complex and difficult corporate management system. And expect high filing fees for Californian businesses every year.
The rules you must contend with are clunky, expensive, and often leave the company worse off. This is not a business-friendly system.
In short, California doesn’t offer you the support you deserve when running your business as a non-resident.
Best State to Incorporate In
The best state is always your home state so you don’t get classified as a foreign corporation. But states like Delaware, Wyoming, and Nevada are all strong contenders for non-resident business owners.
We’ve already talked about Delaware, so we’ll discuss these two states. First, let’s talk about Nevada.
Nevada – The first advantage of Nevada is that it shares Delaware’s view on taxes.
Nevada doesn’t have any state corporate income taxes. It also doesn’t have a personal income tax or a franchise tax.
Another advantage is when trading corporate shares there are no additional fees to pay. There are no costs involved with trading.
Finally, shareholders, officers, and directors don’t need to be resident in Nevada.
Wyoming – The cost of starting a company in Wyoming is one of the lowest in the country. The average incorporation costs are less than $100.
Another advantage is that Wyoming only taxes the entities and businesses within the state of Wyoming. Assets held in other states have no exposure here.
Finally, you have complete anonymity in Wyoming. Only the incorporator and the registered agent must be disclosed. In both cases this can be a third-party that takes no part in the business.
Email me at sam@mollaeilaw.com to discuss the best option for your business. A business lawyer like me can show you what will give you the best protection for your business.
Why Incorporate in Delaware vs. Wyoming?
Delaware’s legal system works differently than Wyoming. This is the main reason you get more protection in Delaware.
Wyoming may indeed have lower filing fees and some tax reductions in specific areas, but it’s not worth trading in the protection that Delaware’s legal system gives.
Wyoming lacks a separate business court division. It also tends to favor management over the rights of directors and owners.
For this reason alone, it’s better to incorporate in Delaware. I recommend that you strongly consider Delaware long before you consider Wyoming.
That doesn’t mean Wyoming doesn’t have its advantages. For small companies that don’t require the systems of Delaware, Wyoming can be an attractive option.
For most companies, though, Delaware is the best choice if you want to incorporate outside of your home state.
Cost to Incorporate in Delaware
The cost of incorporating in Delaware is less than you might think. It’s less than $100 for the formation fee and any service fee you must pay.
The exact cost of the Certificate of Formation, as of today, is $70. But keep in mind that you will also have to pay a service fee on top of that.
Do remember that if you decide to file the long-form Certificate of Formation the fee can be significantly higher.
Why Not Incorporate in Delaware?
There is one main disadvantage to incorporating in Delaware. That is that doing business in another state means that, in most cases, you will have to be foreign qualified.
What does ‘foreign qualify’ mean?
Your business will need to register to transact in other states. This means that you need to fill out a lot of paperwork and pay more filing fees.
There may also be additional regular filing requirements. That can get messy fast.
But it all depends on the states you want to transact in.
How to Get Started with Your Delaware LLC
Getting started with your Delaware LLC requires the help of a professional. Don’t attempt to do it yourself or you could get into trouble.
I say that you should always hire a business lawyer to do it for you. They know the ins and outs of Delaware law, which differs from other states, and they can make the process as fast as possible.
Need help getting started with your Delaware LLC? I’m just an email away – sam@mollaeilaw.com.
Conclusion
To start with, you should seriously consider incorporating in your home state. However, if you’re a non-US resident, then you should consider incorporating in Delaware.
Email me at sam@mollaeilaw.com to discuss your business’s situation. I can tell you what the best option is for you.
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